Secondary trading compliance startup GUARDD expands operations to include NFTs

DENVER, Feb. 8, 2022 /PRNewswire-PRWeb/ -- GUARDD, a Denver-based startup specializing in illiquid securities compliance, announced it is expanding operations to include secondary trading compliance for NFTs on the heels of criticism by SEC Chairman Gary Gensler, saying the markets are "rife with fraud, scams, and abuse" where "in many cases, investors aren't able to get rigorous, balanced, and complete information on tokens or trading and lending platforms."

NFTs, otherwise known as non fungible tokens, are seen as the next wave of digital assets. What started with Initial Coin Offerings (ICO) and then Security Token Offerings (STO) has now morphed into the NFT craze. The only difference is that people seem to be learning from the prior mistakes and market participants expect regulatory action soon.

GUARDD, founded in August 2018, provides ongoing private company financial disclosures so that illiquid securities can compliantly trade on secondary markets. Since some NFTs may be considered securities, GUARDD can assist them to trade within securities laws rather than defying them.

"What most issuers of securities don't understand," says Sherwood Neiss, CEO of GUARDD, "is that while securities may be excluded from Federal registration in a primary offering. In many cases, they are not excluded from state registration and oversight (aka Blue-Sky laws) when it comes to the secondary transfer of those securities. For a small issuer, complying with a patchwork of state-by-state registration is too costly, bureaucratic, and confusing."

This historically has been one of the bottlenecks as to why investors in private companies were tied to those investments until the company had an exit event. This is also why there are billions of dollars of pent-up demand for liquidity by investors.

"There is an exception from state registration," says Neiss. "It is called the Manual Exemption. It requires the issuer to file current and ongoing company and financial disclosures, like what one might see in quarterly filings for public companies in a National Securities Manual. This way, investors have the most current information about the company whose securities are trading."

This is the service GUARDD provides and the pathway that two NFTs have taken; CryptoPunk #543 and CryptoPunk #2142. These NFTs were acquired via part of a securities offering by Otis Collection. Otis used Regulation A, an exempt offering qualified by the SEC, one of the highest bars of regulatory approval. Once approved, Otis then used GUARDD to comply with secondary trading, and a report was published in Mergent's National Securities Manual. These NFTs are now trading on Otis's platform within the US/State regulatory regime. If the regulators come down on NFTs, CryptoPunk #543 and CryptoPunk #2142 will likely avoid their scrutiny.

GUARDD, founded in August 2018, began processing Blue Sky reports in early 2021 and formed a key partnership with Mergent, owner of the National Securities Manual, RIVIO, a 3rd party provider that provides authenticated audit reports and AICPA where GUARDD is a member of the 2021 Accelerator cohort.

While GUARDD's clients are private companies and the creators/issuers of NFTs, its partners are broker-dealers, Alternative Trading Systems, transfer agents, and the like. Compliance is a vital part of what they do, and they all play a role in the secondary transfer of securities.

The startup primarily focuses on helping private companies, and their investors comply with the Manual Exemption so their securities can freely trade. Compliance with secondary trading will be crucial for exchanges seeking to facilitate the trading of NFTs as the regulators enforce securities law.

"Really what GUARDD says is that if you're a creator or an exchange, and you wish to list an NFT for sale, you need to understand how Blue Sky laws play a role and how to comply," Doug Ellenoff Partner at Ellenoff, Goldman and Scholle LLP a securities law firm said.

GUARDD estimates that more than 90% of the world's exchanges that sell to Americans will have to comply with the Manual Exemption as soon as the regulators begin enforcement.

"Oddly enough, it isn't difficult to comply," Keith Marshall of Otis said. "It is a matter of completing GUARDD's standardized report and submitting it." GUARDD's compliance team reviews and publishes the report to trade the NFTs immediately.

GUARDD already counts Alternative Trading Systems and Brokers like PPEX and Templum among its partners and Otis, Collectable, and Landa among its customers. Financial institutions and brokers are also reaching out to GUARDD, Neiss said. The company plans to run a Regulation Crowdfunding offering in 2022 to build its product team.

The global nature of exchanging digital assets appears to be driving some of this urgency to comply with the Manual Exemption. NFT issuers are not just faced with the challenge of appeasing their regulators — they also must figure out how to not lose overseas transaction volumes in the process, Neiss explained.

For example, Luxembourg categorized NFTs into three distinct types: financial instruments, electronic money, and collective investment instruments. While some NFTs may not be securities, the facts and circumstances by which they are created and traded might make them such. If other countries follow this pathway, it will also force global issuers to heed secondary trading regulations in the USA.

"So, we're seeing a large influx of companies that are moving up their secondary trading compliance, so they don't lose anticipated transaction volume," Neiss said.
For more information visit http://www.guardd.com.

Media Contact

Sherwood Neiss, GUARDD, Inc., 1 2022477182, [email protected]

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SOURCE GUARDD, Inc.